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Bob plans to deposit a total of $12,000 each year for 9 years, either by quarter or by year. He has two choices. Option 1: he deposits $12,000 once per year at an annual rate of x% compounded annually Option 2: he deposits $3,000 each quarter at an annual rate of y% compounded quarterly You can assume that x is larger than y. Which option does he prefer? The option with the highest future value Option 1 because the interest rate is higher Option 2 because his funds compound quarterly We cannot compare these options because one compounds quarterly and one annually

Bob plans to deposit a total of $12,000 each year for 9 years, either by quarter or by year. He has two choices. Option 1: he deposits $12,000 once per year at an annual rate of x% compounded annually Option 2: he deposits $3,000 each quarter at an annual rate of y% compounded quarterly You can assume that x is larger than y. Which option does he prefer? The option with the highest future value Option 1 because the interest rate is higher Option 2 because his funds compound quarterly We cannot compare these options because one compounds quarterly and one annually

Economics Today and Tomorrow, Student Edition
Economics Today and Tomorrow, Student Edition
1st Edition
ISBN:9780078747663
Author:McGraw-Hill
Publisher:McGraw-Hill
Chapter6: Saving And Investing
Section6.1: Why Save?
Problem 6R
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Bob plans to deposit a total of $12,000 each year for 9 years, either by quarter or by year. He has two choices. Option 1: he deposits $12,000 once per year at an annual rate of x% compounded annually Option 2: he deposits $3,000 each quarter at an annual rate of y% compounded quarterly You can assume that x is larger than y. Which option does he prefer? The option with the highest future value Option 1 because the interest rate is higher Option 2 because his funds compound quarterly We cannot compare these options because one compounds quarterly and one annually
Transcribed Image Text:Bob plans to deposit a total of $12,000 each year for 9 years, either by quarter or by year. He has two choices. Option 1: he deposits $12,000 once per year at an annual rate of x% compounded annually Option 2: he deposits $3,000 each quarter at an annual rate of y% compounded quarterly You can assume that x is larger than y. Which option does he prefer? The option with the highest future value Option 1 because the interest rate is higher Option 2 because his funds compound quarterly We cannot compare these options because one compounds quarterly and one annually
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